LAST UPDATE | 6 Jun 2024

THE EUROPEAN CENTRAL Bank has announced the first cut to interest rates since 2019, reducing its key deposit rate by a quarter of a percent from 4% to 3.75%. 

The interest rate on the ECB’s main refinancing operations will fall from 4.5% to 4.25%.

The rate changes will kick in on 12 June. After ten rate hikes in a row since 2022, some mortgage customers can expect savings following today’s announced reduction.

Bank of Ireland has confirmed to The Journal that it will reduce its rates on tracker mortgages by 0.25%, in line with the ECB cut. AIB also said its rates on tracker mortgages would come down.

“Customers with a tracker mortgage linked to the ECB rate will see reductions to their interest rate applied in line with their contract following the ECB rate decrease. We will write to these customers confirming the new interest rate and effective date,” a spokesperson for AIB told The Journal.

ICS Mortgages also said it would reduce some of its mortgage rates. 

The cut had been signalled ahead of today’s announcement by the ECB’s Chief Economist, former governor of the Irish Central Bank Phillip Lane, as well as by the bank’s President Christine Lagarde.

“It has been reasonable for us in the last few weeks to basically signal that barring major surprises, many people on the Governing Council, including myself … have indicated there may be enough in the data to say we can remove the top layer of restrictiveness,” Lane said ahead of the cut announcement.

“The reason this is happening is because inflation has fallen,” said Finance Minister Michael McGrath. He said the immediate beneficiaries of the cut will be tracker mortgage holders. 

“And I would expect that other borrowers, including variable and fixed rate mortgage holders, small businesses also, adults taking out personal loans, will benefit over time as banks and non banks reprice their loan products to take account of the new interest rate environment.”

“It’s essential that all borrowers are treated fairly as this repricing occurs over the period ahead,” McGrath said.

“While today’s announcement is undoubtedly a positive development, I am conscious that many households are still facing cost of living pressures.

“It is important going forward that the correct balance is struck between providing supports to those still affected by the recent rise in prices while ensuring that fiscal policy does not act to put inflation on an upward path once more.”

Just announced — good news for mortgage borrowers as the European Central Bank announces interest rate cut.
Here are the thoughts of Minister @mmcgrathtd on the announcement.#ECB #mortgages #banksters @ecb @merrionstreet pic.twitter.com/iDHVwBBMVJ

— Department of Finance (@IRLDeptFinance) June 6, 2024

Daragh Cassidy, head of communications at Bonkers.ie told The Journal that several mortgage lenders have already cut their fixed rates over the past few weeks in advance of the expected cut.

“Tracker customers, who bore the brunt of the ECB rate hikes, will see their rates fall automatically. Someone with €200,000 remaining on their mortgage over 10 or 15 years will see their repayments fall by around €25 a month,” he said. 

Those on variable rates may have to wait a bit longer to see any reductions though, Cassidy explained.

“The main banks only passed on a fraction of the ECB rate hikes to their variable-rate customers in the first place (mind you, variable rates in Ireland were very high to begin with). So, there may not be much movement from the banks here, at least initially.”

Cassidy said that falling interest rates are, however, also likely to lead to lower savings and deposit rates eventually. “So it’s not all good news.”

“At the moment Irish savers have over €150 billion on deposit with Irish banks. A record high. But the vast majority of the money is in easy-access demand deposit accounts that are paying little to no interest.

“I’d really encourage anyone with savings to make sure they’re getting the best return for their money before rates start to fall.”

Bank of Ireland has told The Journal that its tracker mortgage rates will decrease for all tracker mortgage customers by 0.25%.

“For most customers, this change will take effect from 18 June 2024,” Bank of Ireland said.

“Customers don’t need to take any action right now. Bank of Ireland will write to all tracker mortgage customers confirming the new interest rate, the effective date, and their new repayment amount. The Bank continues to keep all other rates under ongoing review.”

Brian Hayes, chief executive the Banking and Payments Federation Ireland (BPFI) said: “Over the last two years, which has seen a series of 10 separate interest rate increases, lenders have sought to take a balanced approach in the pass through of these rates mindful of the cost of living challenges which households have had to contend with.” 

Hayes said banks in Ireland have passed through the third lowest increase in new mortgage interest rates between May 2022 and April 2024, when compared to other EU member states.

“In fact, while the ECB has raised interest rates by 4.5% points, the average rate on new mortgages in Ireland has only risen by 1.51% points, or a third of the full ECB increase.”

Hayes cited the latest data from the Central Bank of Ireland, which shows that of the outstanding stock of mortgages for principal dwellings, 18% are on tracker rates, 67% of mortgage accounts are on fixed rates and 15% are on variable rates.

“Interest rates and pricing of lending is a commercial matter for each bank or non-bank lender that operates in the market place. In addition, lenders are legally prohibited – under strict competition rules – from signalling any future pricing change either publicly or privately.”